ECB lowers interest rates for 1st time in 5 years, Fed to follow suit

The eyes of global markets were focused on the interest rate decision of the European Central Bank (ECB) on Thursday as the bank decided to lower interest rates for the first time in five years.

The interest rate decision of the ECB, which is expected to affect gold, crypto, stock and many more markets, marked the end of the bank’s tightening cycle as it cut interest rates by 25 basis points.

Members of the ECB Governing Council had recently signaled that interest rates would be cut before the United States Federal Reserve’s (Fed) decision, which is also expected to be to lower interest rates, is announced.

The European Central Bank had kept interest rates steady since October after 10 consecutive increases.

Combating high inflation by increasing interest rates, the ECB had raised interest rates by a total of 450 basis points in 10 consecutive meetings since July 2022. However, uncertainty continues regarding the steps the bank will take in the future.

Pressure may ease on euro zone

The ECB is a central bank responsible for managing the monetary policy of 20 countries, including the eurozone which is a currency union of 20 member states of the European Union that have adopted the euro as their primary currency.

The interest rate cut is expected to ease the pressure on the eurozone and partially increase company earnings and have a positive impact on stock prices.

The European Central Bank’s decision to lower interest rates will make it cheaper to borrow money to buy homes or consumer goods.

The interest rate decision will be a turning point in the fight against high inflation.
European Central Bank President Christine Lagarde said on March 20, “We cannot commit in advance to the path that interest rates will follow after the first interest rate cut.”

Whether the easing steps will continue in Europe after the June cut in interest rates and at what pace will depend on the data.

Pressure on Fed to cut interest rates

Fed had given the signal that it would keep interest rates high until inflation in the U.S. came to a point it was comfortable with.

The ECB’s interest rate cut is expected to increase the pressure on the U.S. Federal Reserve and the Fed may enter a faster interest rate reduction path with the decision from Europe.

So, it is thought that the Fed may start reducing interest rates this year. Analysts predict that volatility in the markets may increase in this environment.

BIST closely follows ECB decision

The ECB’s interest rate decision and President Lagarde’s speec impacted the stock market on a global scale.

In Borsa Istanbul Stock Exchange’s benchmark BIST 100 index, 10,300 and 10,200 points were taken as support. 10,400 and 10,500 levels were in resistance position.

European stock markets also reacted positively to the decision.

On Wednesday, BIST 100 index futures contracts in Europe had started the new day with a positive trend.